Tax Preparation A Hassle to You? Edwards' "Form One"

I just listened to JRE's Saturday "E-cast"about overhauling the tax filing system.  It is a short podcast, but it presents an idea I've not heard before, which he calls "Form 1".

More..

In the E-cast, Edwards explains that it takes 7 hours to fill out a 1040 form.  He's right that the average American has to spend hours, sometimes days to gather the data, then one calculates the tax etc.  In his proposal, the IRS would do the work for us, send us our numbers since they already have the data, then either we agree and sign it, or do our own with a different form.

But the big winner would be those who qualify for Earned Income Tax Credits and never it knew it.

Other details (taken directly from Johnedwards.com):

• Completing Tax Forms for Up to 50 Million Americans: For as many as 50 million Americans, the IRS gets all the information it needs to calculate their taxes from employers and financial institutions. Under Edwards' plan, the IRS will calculate these taxpayers' bill and mail them a completed return. Families would only need to do one thing with Form 1: sign and return it. Families with more information - such as charitable contributions, capital gains, or other more complex transactions - will not be able to use Form 1. Form 1 would save taxpayers an estimated 225 millions hours a year. [Goolsbee, 2006; Gale and Holtzblatt, 1997; Treasury, 2003; GAO, 1996]
• Making Filing Easier for All Taxpayers: Each year, both taxpayers and the IRS get information returns from employers and financial institutions (on W-2 and 1099 forms) showing wages, interest and mortgage interest paid. Taxpayers who lose a piece of paper and do not correctly report their income faces audit, additional taxes, interest, and penalties. Under Edwards' plan, the IRS will mail the information it has collected to taxpayers, eliminating the need to gather duplicative documents. The IRS will also provide a free interactive web site for all taxpayers that eliminates the need for data entry, calculators, and tax tables. Of course, families could also choose to continue calculating their taxes as they do today.
• Helping Low-Income Workers: The Earned Income Tax Credit (EITC) lifts more than 4 million people in working families out of poverty every year. However, due to its complexity, as many as one out of four eligible families fail to receive it. By informing families of their eligibility for the credit, Form 1 will significantly increase the EITC participation rate. [CBPP, 2006; Brookings, 2006]
• Taking on Special Interests: Form 1 could save families $2 billion in tax preparer fees, and the tax preparation industry has fought similar efforts. In California, one company spent over $500,000 in a failed effort to derail the successful ReadyReturn program. At the federal level, the IRS agreed with the tax software industry to limit free online filing to low-income taxpayers. Its barebones "Free File" program for low-income taxpayers has a history of hidden fees and bait-and-switch advertisements. [Goolsbee, 2006; L.A. Times, 5/5/2006 and 12/5/2006; Bankman, 2005; Cal. Franchise Tax Board, 2005; Accounting Today, 1/8/2007]

I like this idea because it's example of how government could effectively work for us, and he is looking at tax fairness.

I like it that his plan has supporting evidence as referenced in the articles.

Edwards is the man with plans.  And he's not waiting around to get a poltical poll for this one.  But I'm taking a poll anyway.

•  Tips for Tax Fairness?

  Edwards is clearly thinking ahead.

  by benny05 on Sat Apr 07, 2007 at 11:43:11 AM PDT

  •  I'm sorry

    I got to this thread so late: good idea, good diary.

    Is there an issue on which Edwards isn't going to lead?

    by david mizner on Sat Apr 07, 2007 at 01:49:22 PM PDT

    •  Using radio metaphor

      The hits keep comin'!

      by benny05 on Sat Apr 07, 2007 at 01:54:17 PM PDT

•  A Very Interesting Idea

  But I don't trust my own elected government. So no, I have no desire for them to do my own taxes. I mean I will have to fact check what they've done anyway before I would sign-off.

  by webranding on Sat Apr 07, 2007 at 11:46:53 AM PDT

  •  Someone else suggested

    There would need to be a safety net to address that same concern.

    I probably would fact check too, but I love the idea that those who needed the help would get it.

    by benny05 on Sat Apr 07, 2007 at 11:49:10 AM PDT

    •  No, I Hear You

      But I an not sure our government would actually work to get the best tax return for those that need help the most, those with lower incomes.

      I mean I know for a fact that I can afford to pay a CPA that I pay a lot less then I would if I did them myself.

      by webranding on Sat Apr 07, 2007 at 11:52:11 AM PDT

      •  I use Turbo Tax

        Which is what I discovered many years ago CPA's used.

        by benny05 on Sat Apr 07, 2007 at 11:53:25 AM PDT

        •  Well Then You Had a Terrible CPA

          cause the two owners of my firm at CPAs and I can assure you they don't use a commercial off the shelf product.

          I have a little money through an estate, plus I work out of my house for a a virtual tech firm. The amount and type of deductions I can take hurt my head.

          by webranding on Sat Apr 07, 2007 at 11:56:27 AM PDT

          •  Actually she was pretty good

            But even she said, and this was a few years ago, that the government needed to simplify the process.

            by benny05 on Sat Apr 07, 2007 at 11:59:48 AM PDT

            •  Actually Sorry, Shouldn't Have Said

              that in the manner. Didn't mean to slam you at all.

              The process is out of control. I used to use a local CPA. He was terrible. Just in a few side conversations with my boss, who owned a 200+ person CPA firm before he sold it to American Express, he was stunned I was not getting all the reductions I could since I work out of my house.

              I mean I write off pretty much everything.

              To be honest I don't even understand everything he does for me, but my current guy I use was a referral from boss and I trust him.

              by webranding on Sat Apr 07, 2007 at 12:03:45 PM PDT

              •  "I write off pretty much everything"

                I can't imagine the circumstances under which it would be legal to "write off pretty much everything."

                It might be a good idea to strive to understand what your preparer is doing for you.  Some preparers are extremely aggressive, especially when it comes to home offices and self-employed deductions.

                You're the one who will pay the back taxes, penalties, and interest.

                by Old Left Good Left on Sat Apr 07, 2007 at 12:35:04 PM PDT

                •  Triggering an audit

                  Writing off "everything" may well trigger an audit too.

                  by NCDem Amy on Sat Apr 07, 2007 at 12:55:13 PM PDT

                  •  Yes

                    You are essentially playing the audit lottery.  The IRS has programs in place to identify abusive preparers, so the risk is not only that you might get audited, but that any client of your preparer might get audited and the IRS will decide to audit his/her other clients.  That dramatically increases your risk.

                    by Old Left Good Left on Sat Apr 07, 2007 at 12:57:43 PM PDT

        •  I did too...

          It took me about a half hour to fill out my 1040ez...and that was with all the clicking.

          by kredwyn on Sat Apr 07, 2007 at 03:43:29 PM PDT

        •  CPAs use Turbo Tax????

          Then those CPAs were not worth whatever people paid them. (and those who did pay are STUPID).

          Do you seriously belive a CPA would get software at Staples?

          by inNYC on Sat Apr 07, 2007 at 07:58:11 PM PDT

  •  from what I read about the plan,

    you'd have the option of just sending a check with your form 1 (or getting your check, if thats the case), or having them done on your own.

    by RockRichard on Sat Apr 07, 2007 at 12:15:49 PM PDT

    •  The number crunch primarily IRS' job

      But for things they didn't include, you can take the data and use it.

      by benny05 on Sat Apr 07, 2007 at 12:17:37 PM PDT

      •  That's really the beauty of this plan

        Being able to take the data and using it, and the number crunch of course, is an added bonus.

        by SharonColeman on Sat Apr 07, 2007 at 12:26:58 PM PDT

    •  Rock Richard: I like you post line: Veterans for

      Edwards - Act blue.

      Great for you, do you have a Veterans for Edwards blog?
      I'd like the link if you do.

      by America08 on Sat Apr 07, 2007 at 12:30:03 PM PDT

      •  no, but that a great idea

        however, i'll probably do it after i get out.  Being deployed, that'd be most of what i have to write about.  Don't know if you understand, but there are a lot of things that happen, that i do, that i see done over here that i wouldn't want to cheapen my politicising them.  For instance, I went to a ramp ceremony tonight for a soldier who was killed. I was going to come back and write a diary about it, but i knew what would happen.  it would be nothing but comments about "maybe if bush hadnt waived his training" or "if he had been given proper armor.." and things like that.  I don't want my experiences here to be that way as they are happening.  That Soldier was not a political activist. He was just a Soldier who died for his country.  Regardless of the reasons we are wherever we are, he wouldn't be in the Army if he didn't want to defend his country, and he died serving that country and serving it honorably.  I have no idea whether he was a dem, a repub, or if he even cared about politics at all. and because of that i refuse to make him an activist in his death for a cause he may or may not have believed in. anyway, i'm just rambling now. please donate to the edwards campaign using the act blue link below.

        by RockRichard on Sun Apr 08, 2007 at 02:23:35 PM PDT

        •  I think a veterans for Edwards blog would be

          great. I see your point about writing some topics.

          But, the more we write about the issues the more people can read and understand them. Keep me posted if you start a blog, I would like to add it to mine:

          http://america-in-08.blogspot.com/

          by America08 on Sun Apr 08, 2007 at 02:28:21 PM PDT

  •  I believe CA has something like this already

    I read that 90% are satisfied with it.

    by America08 on Sat Apr 07, 2007 at 12:31:16 PM PDT

  •  Not the proposal

    The proposal is for the IRS to complete a form with the information that it receives through information returns--for example, W-2 and 1099 reporting.  The IRS would complete a return using that information, assuming that you either use a standard deduction or the itemized deductions reported to it (such as mortgage interest).  You can take it or leave it...or use it as a starting point and add additional deductions to which you are entitled.

    The point is two-fold:  to make life simpler for the majority of individual taxpayers (by giving them a return that they can sign or augment with additional deductions) and increased compliance (the IRS spends a lot of money issuing deficiencies based on input errors or omissions of income items that have been reported to the IRS).

    I don't know about the touted EITC benefits, though--the primary problem seems to be determining eligibility.

    by Old Left Good Left on Sat Apr 07, 2007 at 12:55:14 PM PDT

  •  This is my concern also

    and also concerned about an increase in beaurocracy

    by okamichan13 on Sat Apr 07, 2007 at 01:26:39 PM PDT

•  I think it is a good idea.

  We need to get rid of a lot of deductions that only those who have a tax lawyer can use.   Simplifying taxes will make them more fair.    

  Good diary, benny.

  by TomP on Sat Apr 07, 2007 at 11:53:06 AM PDT

  •  I know I struggled quite a bit with Tax Filing

    The calculations, ugh!

    by benny05 on Sat Apr 07, 2007 at 11:54:56 AM PDT

•  IRS soaks up lots of money on their own bueacracy

  Trimming the IRS down would be a good to save money for taxpayers. I read the IRS keeps 60% of  the estate tax for it's own internal bueracracy. I'd like to know the percentage on income tax.

  by StealthAmerica on Sat Apr 07, 2007 at 11:54:22 AM PDT

  •  Really?

    IRS should be working for us, not the other way around.

    by benny05 on Sat Apr 07, 2007 at 11:55:54 AM PDT

  •  Huh

    Got a source on that stat? Also, you need to consider marginal cost versus marginal utility - whether that additional bureaucracy brings in more tax money than it consumes - before you can know whether trimming it back would actually save money or not.

    by McSnatherson on Sat Apr 07, 2007 at 01:16:33 PM PDT

•  Flat tax!

  take it straight off the top of every working person and every company. If everyone paid, say 10%, with none of these complicated, screwy, regressive deductions we could do more and eliminate a lot of government waste.  

  Drink shade grown coffee!

  by mad ramblings of a sane woman on Sat Apr 07, 2007 at 12:00:21 PM PDT

  •  I'm not ready for Flat Tax yet

    But I can understand you would like to have more for Click and Clack!

    by benny05 on Sat Apr 07, 2007 at 12:01:45 PM PDT

  •  No thanks

    those who reap higher rewards from someone else's labor should be taxed accordingly

    by okamichan13 on Sat Apr 07, 2007 at 01:28:22 PM PDT

    •  Agree, okamichan13

      No.flat.tax.

      by NCDem Amy on Sat Apr 07, 2007 at 01:32:12 PM PDT

  •  I'd like to see a simple user's tax

    Tax on what you spend ?  I'd be happy to pay a 10% sales tax, a nickel for my state and a nickel for the feds on every dollar.

    Too easy?

    by catchawave on Sat Apr 07, 2007 at 03:53:06 PM PDT

    •  Consumption Tax?

      Some folks favor that.  Also known as Value Added Tax in Europe.

      I don't know if it could make up the difference or not, and also I don't know if folks would like it since one never gets anything back.

      by benny05 on Sat Apr 07, 2007 at 04:01:10 PM PDT

      •  Yes, thanks for the correction....

        We pay a tax guy, so I'm clueless :)

        I'm all for anything simpler and fair to all, at all income levels.  

        by catchawave on Sat Apr 07, 2007 at 06:40:34 PM PDT

•  It appears that this will take the complexity

  out of filing taxes for everyone.  Regardless of what form, one chooses.

  by SharonColeman on Sat Apr 07, 2007 at 12:03:20 PM PDT

•  Good diary!

  The IRS certainly needs to be overhauled.

  by nannyboz on Sat Apr 07, 2007 at 12:07:31 PM PDT

  •  Tax Code is so strange

    Because the Congress writes it, but at least Edwards knows that part of the Executive Branch is the Treasury Dept and the IRS.

    I also think Edwards knows tax preparation is a big hassle and dislikes it as much as anyone.

    by benny05 on Sat Apr 07, 2007 at 12:09:52 PM PDT

•  In Switzerland they do something similar.

  The swiss have individual mmetings with govt. tax counselors who basically help every citizen to factor the true amont of taxes owed... apparently they are always quick to point out wyas to save maoney and everyone feels well taken care of... at least that's how it was explained to me.

  How civilized, eh?

  Any Swiss kossacks out there who can verify?

  I'm liking Edwards' specificity on many things...

  by bigchin on Sat Apr 07, 2007 at 12:09:33 PM PDT

  •  Interesting

    The Europeans have been a bit progressive for awhile. The UHC system Edwards proposes is a cross between Germany and Dutch systems.

    by benny05 on Sat Apr 07, 2007 at 12:11:09 PM PDT

•  Can't Vote in Your Poll

  It takes me less than an hour to fill out my 1040EZ form.  However, I like Edwards' idea.  I doubt I'll be filing EZ forever.

  by meowmissy on Sat Apr 07, 2007 at 12:12:53 PM PDT

  •  1040EZ

    Doesn't that account for folks who don't qualify for EITC?  Makes me wonder if I had qualified when I was younger and made a lot less.

    by benny05 on Sat Apr 07, 2007 at 12:15:00 PM PDT

    •  you can use 1040EZ with EITC

      There are lines on the form to fill out EITC information if you qualify.  There's even a handy-dandy worksheet to help you figure out if you qualify.  I never have.  As a childless worker, you have to be under 25 to qualify and its only when I was under 25 that I earned less than $12,000 a year.

      by meowmissy on Sat Apr 07, 2007 at 12:23:53 PM PDT

      •  Confusion over eligibility for EITC

        There seems to be a lot of that! I thought you had to have children to quality. I guess this drives home the point, that as Edwards' plan will provide, there needs to be more info on eligibility provided to working families who apparently are qualify but are not filing for it.

        by NCDem Amy on Sat Apr 07, 2007 at 12:27:58 PM PDT

        •  straight from the IRS

          http://www.irs.gov/...

          EITC - it's not just for families with children  
          Low-income workers without qualifying children are estimated to comprise the largest segment of eligible taxpayers who fail to claim the Earned Income Tax Credit (EITC).

          If you are at least age 25 but under age 65 at the end of 2006 and had earned income of less than $12,120 (or $14,120 if married filing jointly), you may qualify for up to $412 in EITC. If you are married and file a joint income tax return, either you or your spouse must meet the age test requirement.

          by meowmissy on Sat Apr 07, 2007 at 12:38:43 PM PDT

          •  Thanks!

            See, I had thought EITC was only for families with children. I wonder how many other taxpayers think this?

            by NCDem Amy on Sat Apr 07, 2007 at 12:56:09 PM PDT

      •  Good to know

        I don't think EITC was around when I was in college or my first few years working.

        by benny05 on Sat Apr 07, 2007 at 12:28:28 PM PDT

      •  opps ... typo

        That should have said you have to be at least 25 to qualify ... now that part about me only making less than $12,000 when I was under 25 makes sense! I started making more money as I got older and didn't qualify.

        by meowmissy on Sat Apr 07, 2007 at 12:34:11 PM PDT

•  Impressive!

  Another real plan to give working Americans the fair shake they deserve rather than offering up  platitudes.

  This point really jumped out at me:

  Helping Low-Income Workers: The Earned Income Tax Credit (EITC) lifts more than 4 million people in working families out of poverty every year. However, due to its complexity, as many as one out of four eligible families fail to receive it. By informing families of their eligibility for the credit, Form 1 will significantly increase the EITC participation rate.

  by NCDem Amy on Sat Apr 07, 2007 at 12:13:34 PM PDT

  •  Yeah, I like the idea of Tax Fairness too n/t

    by benny05 on Sat Apr 07, 2007 at 12:15:55 PM PDT

    •  Tax fairness

      Yes, it's so important especially considering the countless loopholes the wealthy have for avoiding paying full taxes.

      Edwards is also opposed to eliminating the estate tax, which of course, if eliminated would favor only the top 2% and put more burden on the middle class.

      by NCDem Amy on Sat Apr 07, 2007 at 12:18:41 PM PDT

•  What's with the poll?

  Maybe my tax situation is uncommonly easy, but it takes me less than 30 minutes to do the e-filing thing.

  by dennisl on Sat Apr 07, 2007 at 12:17:18 PM PDT

  •  Yeah, I wish I could redo the Poll

    Sorry, I didn't think about 1040EZ...

    by benny05 on Sat Apr 07, 2007 at 12:19:06 PM PDT

  •  Sounds like your situation is "uncommonly easy"

    That is not the case for my husband and I.

    This plan will also save "families $2 billion in tax preparer fees..."

    by NCDem Amy on Sat Apr 07, 2007 at 12:21:59 PM PDT

    •  not really

      Keep in mind, the number of single people living alone is increasing. Single people are less likely to own a home, which is the reason many people begin to itemize their taxes in the first place other than business related expenses. It's much more common than you think.

      by meowmissy on Sat Apr 07, 2007 at 12:30:16 PM PDT

      •  Perhaps

        But as noted in the plan,  "The Earned Income Tax Credit (EITC) lifts more than 4 million people in working families out of poverty every year. However, due to its complexity, as many as one out of four eligible families fail to receive it"

        We do some of our taxes ourselves and it takes several sessions of several hours and then we have a CPA do other portions.

        Regarding your comment about single adults, if I recall correctly, the majority of adult Americans are married and are home owners (approx 70%). I'd have to look up the percentages on the USCB site to give you an exact.

        So,while there are more single adults than in past times, the large majority are married and are homeowners.

        by NCDem Amy on Sat Apr 07, 2007 at 12:37:59 PM PDT

        •  yep ...

          So,while there are more single adults than in past times, the large majority are married and are homeowners.

          Yes, I know.  I was only pointing out that those of us who use the 1040EZ aren't all that uncommon.

          due to its complexity, as many as one out of four eligible families fail to receive it

          Have you ever filed out the EITC?  It's not difficult.  I have a feeling, in many cases, people just don't know what it is or assume they don't qualify so they don't file for it.  

          For example, someone above didn't realize that childless workers could qualify - they thought you had to have kids.

          If it was done for them they'd get it, but people in that income bracket can't afford to have someone do their taxes, which is why Edwards plan is a good idea.

          by meowmissy on Sat Apr 07, 2007 at 01:00:02 PM PDT

          •  Confusion over EITC

            Yes, apparently there is a lot of confusion over it since so many families who qualify for it aren't filing for it, as pointed out in the Edwards plan.

            This situation reminds me of how so many children qualify for Medicaid but are without healthcare coverage because their parents either don't realize they qualify or don't understand how to apply for it. Educational outreach efforts are almost always a good investment.

            by NCDem Amy on Sat Apr 07, 2007 at 01:07:19 PM PDT

  •  you're not alone

    It doesn't take me long to do my taxes either.

    by meowmissy on Sat Apr 07, 2007 at 12:25:15 PM PDT

•  Didn't James Carville suggest something similar?

  In his book "Had Enough?" he had a chapter about simplifying taxes in a somewhat similar way didn't he?

  It's a good idea either way.

  by fuzzex on Sat Apr 07, 2007 at 12:22:05 PM PDT

•  Just One Last Thought

  I am not normally a tin foil hat wearing guy. But I can easily imagine somebody like Bush, telling the IRS if they'd shave like .5% off of every tax return in less deductions, the budget numbers would look a lot better.

  by webranding on Sat Apr 07, 2007 at 12:22:53 PM PDT

•  When I think about Tax Code

  I think of how Elizabeth Edwards explained tax code in Harrisburg, PA in 2004 general election.  Someone here said she could roll it off her tongue like blueberry pie.

  Blueberry pie tax filing!

  by benny05 on Sat Apr 07, 2007 at 12:23:08 PM PDT

  •  Being an excellent bankruptcy attorney

    she probably knows the tax law, inside and out.

    by SharonColeman on Sat Apr 07, 2007 at 12:45:09 PM PDT

•  Doing taxes is like being in a Jungle.

  It could be and should be made easier.

  Go Edwards, I'm with you on this one too.

  by America08 on Sat Apr 07, 2007 at 12:43:34 PM PDT

•  I'm not sure I trust them...

  ...to do it right. My guess is that they'd send you something inpenetrable and impossible to understand and to tell if they've done it right. This is my feeling after years of dealing with medical insurance statements, which are usually impossible to figure out.

  Remember that we have a situation now where the tax code is so impossible that if you give 10 tax professionals the same situation, they all come up with different results.

  I'd rather see a simplification of the tax code to something that most people could understand, so people could do their own taxes.

  by lesliet on Sat Apr 07, 2007 at 12:53:54 PM PDT

  •  Trust

    The plan is to essentially have the IRS fill in the numbers from W-2s and 1099s that it has.  There's not much room for error there.

    And if 10 tax professionals cannot agree on how to fill out a 1040EZ or 1040A for a typical wage earner, some of them are not professionals.

    by Old Left Good Left on Sat Apr 07, 2007 at 01:01:43 PM PDT

•  How about...

  online tax form submission that doesn't involve TurboTax etc...  I file on paper because I don't want to use commercial software to do my taxes.  It's disturbing in this day and age that someone is entering in my paper form.  I would be more than happy to enter the data myself if the IRS gave me a way to do so which didn't involve TurboTax.

  by ortcutt on Sat Apr 07, 2007 at 12:56:03 PM PDT

  •  Political influence

    Congress caved to Intuit and HR Block and the like and refused to give the IRS the authority to develop a public system of e-filing.  That's a shame.

    There are free alternatives to TurboTax, such as TaxACT.  I've used it to file my personal returns for several years--and I'm a tax attorney with access to professional-grade preparation software.  I just find it easier to use a simple product.

    If your tax situation is anything other than a basic return with basic deductions, you should have a professional look it over for accuracy, compliance, and for tax planning suggestions.

    by Old Left Good Left on Sat Apr 07, 2007 at 01:09:18 PM PDT

•  Interesting idea, except

  the information the IRS receives (W-2's, 1099s, etc.) is not always correct, and some records lag behind.  Note also, that 1099s are not required to be filed under certain circumstances, but the taxpayer is still (generally) required to report any income earned even if it is not so reported (Eg. less than $600 non-employee compensation from a payor.)
   Will taxpayers be more or less likely to dispute a return "prepared" by the IRS?  If they dispute the tax liability per the IRS, how hard will it be for them to defend their version of a return?
   

  by FoundingFatherDAR on Sat Apr 07, 2007 at 01:01:40 PM PDT

  •  Possible for Accountability

    You raise a good point, and perhaps it's time we made the IRS accountable too.

    by benny05 on Sat Apr 07, 2007 at 01:13:02 PM PDT

    •  The IRS is held accountable.

      It's called Taxpayer Bill of Rights

      by FoundingFatherDAR on Sat Apr 07, 2007 at 02:13:18 PM PDT